The Swedish lesson
Kai Ryssdal: The government of Greek Prime Minister George Papandreou survived a no confidence vote last night. That means there’s not going to be any real debt crisis news ’til next week, when Parliament will vote on tax increases and wage cuts as part of another austerity program. You could fairly say Greece has dominated the economic news in Europe — and here, to some degree.
Commentator David Frum says we ought to look elsewhere for the answer.
David Frum: While they riot in Greece, it’s calm in Sweden. Well, that may sound like the ultimate dog-bites-man story. Isn’t it always calm in Sweden?
But wait a minute. We often hear that the Greece story is a story about excess government spending leading to social crisis. Yet who spends more than Sweden?
In fact, in the decade leading up to the Great Recession, Greece spent about half its national income on government. That’s high by American standards, but it’s quite typical of Europe. Sweden ranks at the top of Europe spenders.
Sweden was hit extremely hard by the recession. The Swedish economy shrank more than 6 percent, one of the deepest slumps in Europe, and much more than Greece shrank at that time.
But in 2010, Sweden started a strong recovery, while Greece has sunk ever deeper into the quagmire. What was the difference?
Simple. The Swedes cut everybody’s wages and consumption across the board. By cutting costs, Swedes boosted their exports. The economy surged ahead.
How’d they do it? Simple again. Sweden has its own currency, the kroner. The Swedish kroner was one of the weakest currencies in the world through the recession. It lost more than one-third of its value against the dollar. Nasty and unpleasant for every Swede. But not the kind of nastiness that causes riots.
The Greek drachma did not decline — for the powerful reason there is no more Greek drachma, only the euro. So the Greeks have had to cut costs company by company, government department by government department, person by person. The message here is not: the drachma rules. The drachma was a terrible currency run by an irresponsible government. The message is: The right monetary policy can cushion external shocks. The wrong policy can transform a shock into a catastrophe.
The United States has been hit by some very hard shocks. But despite zero inflation, some urge that the United States tighten its monetary policy to avoid — get this — going the way of Greece. Such people have their message exactly upside down. The medicine they prescribe is exactly the stuff that will bring the outcome they want to avoid.
Ryssdal: David Frum was a speechwriter for President George W. Bush. He’s now editor of FrumForum. Next week, Robert Reich. Your views, whenever you want to send them to us. Click on this contact link.
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